Why collaboration is the new competition in town

I learnt a valuable lesson by observing business owners at a popular market in Karen. I noticed that each contributed a small amount of money at the end of each day for water supply and general cleaning. The market was very clean as a result.

A few years later when the market was burnt down, I found out that the hair salon owners collaborated and contributed to get a bigger space in a nearby commercial building.

I was very impressed and wanted to learn more from them. I was curious to learn how competitors serving the same clientele were able to collaborate and operate separate businesses on the same premises.

I asked more about their structure and here is what I learnt. The expenses like rent and cleaning were shared equally among the five different business owners.

However, each business retained its staff and maintained its clientele. They had a gentleman’s agreement not to undercut one another or “steal” clients from each other.

As a result, operated on bigger premises and better business address than before.

The lesson I learnt was that collaboration is a new competition. In the traditional business sense, competition between similar businesses occurs.

Strategies to remain competitive include price cuts, discounts, improvement of quality, innovation and advertising.

For a business to maintain a market leader position it has to think outside the box in a bid to gain a bigger market share.

However, collaboration is a new global trend. It happens when similar businesses targeting the same market, join forces to undertake some activities together. Collaboration minimises competition to a certain extent.

It has several advantages. The businesses can achieve greater economies of scale that is, they can cut costs and make more profits by collaborating.

Their bargaining power also increases and they can operate on a much larger scale. However, collaboration also has several disadvantages the biggest being the dilution of the individual businesses vision.

The businesses have to give up autonomy to some extent and instead put the group’s goals above individual goals.

Collaboration also weakens the consumer’s position. Consumers have less variety to choose from and the quality may reduce.

So crucial is the impact of collaboration on consumers that the Competition Authority of Kenya’s consent is a pre-condition if it shall have a serious effect on the market.

Collaboration on a smaller scale may take place without any consent from the authority. How do you go about collaboration?

First, identify the right partners. Collaboration is pegged on mutual understanding and good relationships and it starts with getting the right people.

Define the area of collaboration. You may collaborate on certain aspects but retain autonomy in others. It is important to have clarity on the areas of collaboration to avoid future misunderstandings.

You need to choose the method of collaboration and put in place the right structures and legal documentation to implement this.

If you opt for a loose or a short-term one, you could do a memorandum of understanding setting out the goals and objectives of the collaboration.

In the coming series, I will analyse how businesses can implement a collaboration strategy.